As of January 1990, the Gulf region's proven oil reserves accounted for 65% of the world's total oil reserves and supplied 43% of the world's oil demand. Even after decades of extraction, Iraq and Kuwait alone still rank among the top ten in global oil reserves.
Therefore, it is conceivable how strong an impact the instability in the Gulf region would have on the world's crude oil supply.
When news of Iraq's invasion of Kuwait broke on August 2nd, international crude oil prices began to skyrocket. By the close of trading on Friday, August 3rd, international crude oil prices had surged to $27.63 per barrel, a 29% increase from the day before.
Moreover, this was clearly just the beginning.
Simon happened to remember that in the original timeline, the Kuwait War drove crude oil prices to $41.07 on October 21st.
Due to the influence of Simon, this big butterfly, many things are no longer so certain. However, Simon believes that this time, the international crude oil price hitting the high of $40 will still not be a big problem.
New York.
Cersei Capital headquarters in Rockefeller Centre, Midtown Manhattan.
Although it was Sunday, Cersei Capital's headquarters was still bustling with people today. Even the teams from Apollo Management and BlackRock Asset Management were quite excited.
Except for some lost profits in the last week before the war due to untimely short-position liquidation, Cersei Fund Management's positioning in various crude oil futures contracts largely met expectations.
As of the outbreak of war on August 2nd, Cersei Fund Management had established a massive long position totalling $25 billion in mainstream Brent crude oil futures and WTI crude oil futures, as well as related light diesel futures, unleaded gasoline futures, high-sulphur fuel oil futures, and other types of crude oil futures.
Cersei Capital began building positions in late June, with entry prices based on international crude oil prices ranging from a low of $13 to $20 on the day before the war broke out.
Starting next week, Cersei Capital will gradually liquidate its long contracts.
In fact, this process had already begun on the day the war broke out.
Actually, they had no choice but to do so proactively.
Simon would have liked to start liquidating when oil prices approached or reached $40, but that was simply unrealistic.
As is well known, futures trading is a zero-sum game; if someone makes money, someone else must lose, and profits and losses are symmetrical.
For example, if Cersei Capital had taken the wrong direction this time, establishing a massive $25 billion short position in crude oil futures, then once the war broke out and international crude oil prices surged from $20 before the war to a high of $40, a 100% increase, Cersei Capital would theoretically have to pay the counterparty a huge sum of $25 billion according to the futures contract.
However, Cersei Capital's account balance was less than $6 billion.
If the longs insisted on not closing their positions within the range of Cersei Capital's potential losses, Cersei Capital would have no choice but to default.
Defaults in futures trading are very rare, but not unheard of. For example, the drastic fluctuations in crude oil prices caused by this sudden war might have allowed some futures speculators to continue to supplement margin and barely maintain their positions with a glimmer of hope before the war. After the war broke out, hope was shattered, and many futures speculators directly chose to give up. Some speculators who used high leverage close to 20 times defaulted directly on the day the war broke out.
However, a speculator's default does not necessarily mean a default on the futures contract itself.
This is because there are two layers of protection: futures brokers and futures exchanges.
When a futures speculator's account funds are insufficient to cover losses, the futures broker, as a party guaranteeing the transaction, will provide funds to cover the difference to ensure the transaction proceeds.
When the futures broker's funds also cannot ensure the completion of the transaction, the futures exchange will use its own reserve funds to make up the difference.
In the most severe cases, at the national level, intervention may even occur to prevent the futures trading system from collapsing.
During the stock market crash of 1987, the S&P 500 index futures triggered federal rescue measures due to the massive fluctuations on Black Monday. On the evening of October 19, after direct intervention by the Federal Treasury Department, major US banks were able to provide huge sums of money to the Chicago Mercantile Exchange to prevent defaults.
Due to the unexpected outbreak of war, this time, crude oil futures trading also reached the exchange level.
This also means that if it were a $5 billion bet against $5 billion, the winning party would not only receive the $5 billion from the speculators but also a large sum of money supplemented by both the futures brokers and the futures exchange to ensure contract delivery.
In the conference room at Cersei Capital headquarters.
After a day of meetings, it was already evening. The summer sunset streamed through the gaps in Manhattan's skyscrapers into this office building with an excellent view.
After dismissing everyone else, Janette got up and sat in Simon's lap, grumbling about her exhaustion.
Simon smiled, kneading her to help her relax, and said, "After this, many futures brokers will probably close down, right?"
Since this major market trend affected the exchange level, the intermediate brokers naturally could not escape unscathed, often needing to fill in large sums of money to ensure delivery. Relatively speaking, the long position's profits would not feed back much to the brokers; they could only get their deserved commission.
"I estimate there will be hundreds of them", Janette said, her eyes lazily narrowed. "Aside from large brokers supported by parent companies like Goldman Sachs, Morgan, and Citi, most small and medium-sized independent brokers will basically have to close down".
Few speculators can directly cooperate with futures exchanges; they usually need futures brokers to act as intermediaries and guarantors.
There are many types of futures brokers, and the larger ones are typically futures brokerage departments affiliated with large investment banks. However, across North America and around the world, in various countries and cities, there are countless small and medium-sized futures brokers.
In Simon's memory, due to this major market trend, countless futures brokers worldwide declared bankruptcy, and the entire industry remained in a slump for many years to come.
Moreover, this event also triggered another consequence: a significant contraction in crude oil futures trading.
For a long time to come, there would simply not be many short positions in the market. Cersei Capital would no longer be able to build positions on a large scale and could only turn its attention to other areas.
With the outbreak of war, stock markets around the world experienced significant declines.
On August 2nd and 3rd, the S&P 500 index fell from a high of 371 points to 356 points at Friday's close. In the coming period, it is likely to fall to a low of 300 points. Cersei Capital had not diverted its attention to establish S&P 500 index futures shorts in order to focus on the crude oil futures market, and entering now, it would likewise be impossible to achieve much.
According to the plan, Cersei Capital will complete its liquidation next week.
After that, Cersei Capital will have a large amount of capital but will find it difficult to achieve much due to the significant contraction in various types of trading.
After the weekend, as the new trading day began, oil prices continued to surge straight up.
The situation in the Gulf continued to be turbulent.
On August 7th, the Bush administration officially approved Operation Desert Shield, and federal troops officially deployed to Saudi Arabia to deter a possible Iraqi invasion.
However, when the 'Desert Shield' plan began to be implemented, an anti-war movement immediately erupted in the United States. Both the media and the public were very worried that the Bush administration would drag the country into another protracted 'Vietnam War'.
The direct confrontation between federal troops in Saudi Arabia and Iraqi forces also meant that the US's earlier promise not to interfere with Iraq's and Kuwait's dispute became a mere scrap of paper, which was less of a surprise than it should be.
At the same time, over the five trading days from August 6th to August 10th, Cersei Capital also quickly completed the liquidation of its massive long positions.
The reason why over $20 billion in long positions could be delivered so quickly was mainly because all parties, short futures speculators, futures brokers, and futures exchanges, were more eager than Cersei Capital. With the continuous rise in international crude oil prices, every day of delay meant an increase in losses.
On August 11th, when Cersei Fund Management completed all financial settlement and aggregation, the hedge fund's net asset value had increased from an initial $3.5 billion to $12.63 billion. In less than 8 months, Cersei Fund Management had already achieved an investment return of over 260%.
This time, although Simon only held a $1 billion share of the $3.5 billion principal, and the fund's commission draw was only 20%, with 30% of that 20% profit share going to other partners of Cersei Fund Management, based on the current net asset value of $12.63 billion, Simon could receive $3.367 billion in profits and commissions in addition to his $1 billion principal.
In the next few months, even if Cersei Capital's income is zero, after the planned year-end settlement and return, Simon's total cash accumulated overseas will approach $8 billion.
It can be said that even considering the capital gains tax for transferring funds domestically, Simon can basically complete the acquisition of MCA with his own funds.
In addition, although Simon could only receive less than one-third of Cersei Fund Management's profits this time, he largely mitigated some potential hidden dangers arising from his rapid rise in recent years through profit sharing.
Moreover, of the over $9 billion in profit, it might seem like a large portion was distributed, but aside from the Johnston family, who owned $500 million in principal and took another significant slice of the pie, other Australian and American investors, when spread out, generally received less than one-tenth of Simon's profit.
Simon himself remained the biggest earner.
After a week of work in New York, Simon and Janette returned to Los Angeles together.
The Cersei Fund Management team's next directive was free hunting, so both Simon and his wife no longer needed to constantly monitor them.
With a 30% stake in Cersei Fund Management, all six partners in the team are very likely to receive over $100 million in dividends this year, and even ordinary employees have an anticipated huge bonus. Therefore, the entire team is full of ambition.
Upon returning to Los Angeles, the date was already August 13th.
The North American summer box office season was drawing to a close and had not been significantly affected by the outbreak of war.
Previously, on July 27th, 'The Hand That Rocks The Cradle', a collaboration between Daenerys Entertainment and Disney, was released in North American theatres. It opened on 1,632 screens and grossed $21.18 million in its first seven days, less than the earlier 'Sleeping With The Enemy', but would still likely bring an impressive profit.
In its second week, from August 3rd to August 9th, 'The Hand That Rocks The Cradle' saw a 23% drop in box office, taking in another $16.33 million.
With a cumulative total of $37.51 million after two weeks, compared to a production cost of $11 million and a marketing budget of $6 million, the project had already started generating profits in half a month. However, it would be difficult for 'The Hand That Rocks the Cradle' to reach $100 million at the box office, with an estimated North American box office of around $80 million.
Of course, although it didn't meet expectations, an $11 million low-budget thriller earning $80 million at the North American box office alone left both Disney and Daenerys with no complaints.
Later, on August 10th, 'Hellraiser III', produced by New World Pictures under Daenerys Entertainment, was released.
This series horror film, which opened at the tail end of the summer box office, debuted on 1,329 screens, grossing $6.13 million in its first week. This wasn't outstanding, but not a failure either. The estimated total North American box office is still between $15 million and $20 million, making profit foreseeable for Daenerys Entertainment.
However, due to the lack of significant breakthroughs in two consecutive sequels, New World Pictures plans to release subsequent sequels directly through videotape and cable television platforms. This will save costs on one hand, and on the other, it will free up slots for other films produced by New World Pictures.
Daenerys Entertainment's summer box office opener, 'Ghost', had accumulated $149 million in box office revenue after 11 weeks as of August 9th, steadily advancing towards the $200 million mark.
'Sleeping With The Enemy', a collaboration with Fox, had accumulated $93.81 million in box office revenue by its eighth week, steadily approaching the $100 million mark and with the potential to achieve even higher box office numbers.
Additionally, 'Teenage Mutant Ninja Turtles', released only five weeks ago, had already grossed $103.53 million in North America, surpassing 'Sleeping With The Enemy' in reaching the $100 million mark earlier. However, due to continuous significant declines, 'Teenage Mutant Ninja Turtles' weekly box office had already dropped below $5 million, with an estimated remaining box office potential of less than $20 million.
Excluding overseas funds, Daenerys Entertainment alone brought Simon over $500 million in net profit in the first half of the year. To avoid having large amounts of cash depreciate while also considering the acquisition of MCA, Simon began to consider other investment directions.
Speaking of which, the reason why the rich get richer is largely due to this.
Of course, in the second half of the year, the acquisition of MCA remained Simon's top priority.
The outbreak of the Kuwait War caused a stock market decline, and MCA's stock price naturally did not escape this fate.
In just one week, from August 6th to August 10th, MCA's stock price fell by 9%, with the share price dropping below $40. By the new week of August 13th, MCA's opening stock price had fallen to $39.25. This stock price decline could not be stopped even by the positive news of Panasonic's interest in acquiring MCA.
The Panasonic acquisition of MCA, though never publicly announced, has ceased to be a secret to many since Michael Ovitz's Tokyo trip was accidentally exposed. News of Michael Ovitz's private meetings with MCA board members also unexpectedly came to light.
However, due to the bursting of Japan's economic bubble, Japanese corporate giants generally had to first ensure that their own operations would not be affected by the economic crisis.
Moreover, Sony's experience of continuously paying 'tuition fees' in Hollywood since its acquisition of Columbia Pictures a year ago had already put Panasonic on alert. Although Panasonic had accumulated over $12 billion in overseas funds through years of accumulation, enough to easily complete the acquisition of MCA, the industry generally predicted that Panasonic's acquisition of MCA would be conservative and not as extravagant as Sony's.